Your Swollen IRA Could Be Costing You

There's a 'Sweet Spot' for Starting Withdrawals

February 9, 2014

Financial advisers see a golden opportunity for older clients to save taxes and build wealth by tapping their tax-deferred accounts instead of letting the money sit. They may have to sell the idea, however, because lots of people believe it's best to leave their IRAs or 401(k) accounts untouched until the government requires them to start making withdrawals at age 70½.

ENLARGE

At 59½ years, account owners can start taking out money with no tax penalty. At 70½, they must withdraw a minimum amount each year. Between these milestones, many are in a low tax bracket that allows them to take money from a tax-deferred account relatively painlessly. The goal of creative planning is to keep the account from getting so big that it becomes a tax burden later on, and to build wealth outside of it.

"I call it the sweet spot for tax planning," says Ed Slott, an expert on IRAs and other retirement savings accounts. Tax-deferred accounts, he adds, are "infested with taxes," and long-term planning is a must to minimize them.

California adviser Stefan Prvanov says some of his retired clients come in feeling confident because they know they will be in a low tax bracket over the short term. They may be living off a taxable account and have a large 401(k) or IRA they don't plan to tap until 70½. A 62-year-old, for example, may know he will owe little or nothing in taxes at least until he's 65. That is not looking far enough ahead, the adviser cautions.

The Internal Revenue Service has loosened restrictions on moving money from a traditional tax-deferred account to a Roth account, a tactic that now is hugely popular with advisers as a tool to help clients in or near retirement. Mr. Prvanov says his firm averages between 30 and 40 Roth conversions a year. Roth owners pay the taxes upfront on money going into these accounts, which can grow tax-free and face no taxes on withdrawals later.

—Arden Dale WSJ.com

Health Law's Work Impact

The Affordable Care Act is projected to reduce the total number of hours Americans work by the equivalent of 2.3 million full-time jobs in 2021, a bigger impact than previously expected, according to a report released Tuesday by the nonpartisan Congressional Budget Office.

The CBO says a key factor is people scaling back how much they work and instead getting health coverage through the ACA. The CBO had earlier forecast the impact would be the equivalent of 800,000 workers in 2021.

The report prompted sparringin Congress. Republicans said the study confirmed their belief that the law would impact the labor market and harm economic growth. Democrats said the study shows the law will free Americans from "job lock" and allow them to work hours they see fit.

—Louise Radnofsky And Damian Paletta WSJ.com

Health Insurers Pressured

Insurers are facing pressure from regulators and lawmakers about plans that offer limited choices of doctors and hospitals, a tactic the industry said is vital to keep down coverage prices in the new health law's marketplaces.

Last week, federal regulators proposed a tougher review process for the doctors and hospitals in plans to be sold next year through HealthCare.gov, a shift that could force insurers to expand those networks.

State regulators in Washington and New Hampshire are ramping up their own scrutiny, and lawmakers in other states are weighing bills that could force plans to add more hospitals and doctors. Consumers have complained that they don't have access to a broad enough range of care, such as specialists at top medical centers, which tend to charge insurers higher fees and aren't included in many of the new networks.

—Anna Wilde Mathews And Christopher Weaver The Wall Street Journal

The Aggregator features news and commentary from The Wall Street Journal and other publications. Email: lindsay.gellman@wsj.com

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.